Finimize - 🛢️ Saudi's oil trouble

What’s going on here?

Saudi Aramco reported disappointing earnings on Tuesday, but managed to keep its government shareholders happy with a huge payout.

What does this mean?

As the biggest fish in the oil game, Aramco serves as a bellwether for the global energy industry. So the fact that its profit shrank by 15% last quarter from a year ago is a good indication of how the sector’s doing. Still, Aramco kept its quarterly dividend – the world’s biggest – unchanged at $31 billion, which is a lot more than the cold, hard money it made last quarter. That left its balance sheet with more debt than cash for the first time in two years. And that may be a problem, but it’s hardly negotiable: the Saudi government, which owns nearly all of Aramco, depends on the payout to fund its economic transformation plans. Almost ironically, a huge part of those projects is diversifying away from oil.

Why should I care?

Zooming in: Curb your enthusiasm.

Aramco’s been allowed to churn out “only” nine million barrels of the slippery stuff a day for over a year – thanks to OPEC+’s agreed-upon production curbs. And while the group of the world’s biggest oil-producing countries had been planning to open the taps a tad in December, it just announced it would delay the move by a month. That was the second postponement in a row, driven partly by weak demand in China and flowing oil supply from the US, both of which are creating a glut in the crude market.

The bigger picture: Plugging the gap.

Fresh data last week showed oil production in the US jumped to a monthly record of 13.4 million barrels a day in August. So it’s hardly surprising that OPEC+’s massive output curbs haven’t exactly had the impact you might expect, with countries outside of the group – especially the US – more than happy to make up the difference.

What’s going on here?

Foreign investors have been hitting India’s stock market exits, with the country’s bustling economy showing fresh signs of a slowdown.

What does this mean?

Global funds yanked over $10 billion from India in October alone, pushing the stock index dangerously close to a “technical correction” – that is, a dreaded drop of 10% from a previous high. India had been the darling of investors, with its rapid economic growth and booming corporate profits, and a global push to move supply chains out of China. But that glow has started to dim, with valuations looking excessively high, growth appearing weaker, and Chinese stocks lately making a stimulus-fueled comeback.

Why should I care?

For markets: Crunch time for Indian authorities.

Consumer confidence in India has been slipping, as folks cope with higher prices and weaker job prospects. And that's caused companies across sectors – from soap to cars – to warn of a demand slump among the middle class. No surprise then that last quarter’s earnings missed more than they hit, or that economic growth has been dragging its heels at 6.7% – its slowest pace in over a year. Economists now think it’ll stay under 7% for 2024, a dip from 2023’s 8.2%. That’s put Indian policymakers in a bind: they’ll either have to cut interest rates and risk stoking already hot inflation, or hold the line and risk hobbling an already sluggish economy.

For you personally: Weathering the storm.

Investors with an eye on India might want to keep one foot on the gas and one on the brake. The economy may be sputtering, but the government’s revving up a plan to woo back foreign investors by letting them invest in its market’s flexible stock and debt “mezzanine” investments. And that could mean some serious money being pumped back into Indian businesses. So while the ride might be bumpy now, the road ahead could well be headed higher.